Wednesday, August 25, 2010
Mayor Harvey Johnson Jr. announced a 2011 fiscal-year budget containing no layoffs, but promising significantly more long-term debt. The $313.6 million budget, which begins in October, is a $10.6 million decrease over the city's operating budget from the previous year. The budget does not demand furloughs or layoffs, but does carry the threat of an average $52 annual water- and sewer-rate increase.
"We will be able to accomplish this reduction through realignment in some city departments, decreasing capital outlay, restructuring our general obligation bond debt and implementing performance-based budgeting," Johnson told a crowd of more than 100 at his Aug. 18 budget address in city hall.
Johnson promised many improvements to the city in the upcoming budget year, including new municipal-court software making possible the payment of citations online, and software allowing for the online payment of water bills. The city is also looking to hire new city employees for street cleaning, despite the attrition of many other staff positions, which helped reduce the city budget by 4 percent from last year's budget.
The mayor said that the budget required no money from the city's "rainy-day fund," which contains 7.5 percent of the city's budget, and that many credit rating agencies use to determine the city's interest rate on bond projects.
The long-term impact on the city's credit rating could prove considerable if the city finds itself having to dip into its rainy-day fund to finance new debt payments resulting from the council's Aug. 10 decision to restructure the city's bond debt.
"This year we took the important first step of hiring a financial advisor who made important recommendations to close the projected short-term deficit of $9 million in the 2011 fiscal year and a possibly cumulative $48.5 million deficit by 2015 if we did nothing," Johnson said. "One of the recommendations was to restructure existing bond debt in order to realize some savings that would provide some relief while our local economy was able to recover."
Johnson said the restructuring will save the city about $5 million for the next four years, but Ward 1 Councilman Jeff Weill—one of two council members, including Ward 2 Councilman Chokwe Lumumba, who voted against the restructuring plan—expressed alarm at setting the city up for more debt following that four-year honeymoon.
"I'm deeply concerned about this. We're using our credit card to pay the light bill. I know this will get us by the next three or four years, but when you start looking a little further down the road it's a giant hole in the budget.
"We go from pulling in $5.5 million next year to 10 years from now, the opposite of that. In 2020, we're $4.2 million in the hole. This is money we're not getting. This is money we're losing, and I think we're putting it on the backs of our children," Weill said at the Aug. 10 council meeting prior to Johnson's budget address.
The debt refund and restructuring plan will generate less than $20 million in immediate savings including savings of an average $5.5 million in the years 2011, 2012 and 2013, and about $2 million in 2014.
However, beginning in 2015, the refinancing will begin costing the city money, with the city owing just under $1 million in annual extra funding for debt service in the years 2015 through 2018, and almost $2 million in funding in 2019. The years 2020 through 2023 will suffer an annual payment rate of $4.5 million while the year 2024 will cost the city about $6 million.
The city would have to begin paying down its bond debt with or without the restructuring plan, but Deputy Director of Administration Rick Hill said the restructuring will add another $10 million to the municipal bond debt.
The city is immediately applying $5.5 million in savings from the restructuring plan to a $9 million deficit in fiscal-year 2011, due to tax-revenue shortfall.
"We're buying ourselves some time to get ourselves out of this economic situation the city is in and allow for some development to get on the city books, and a subsequent revenue increase that development will bring," said Hill, who added that he would not advocate for the restructuring plan "if there were any other way."
Hill said new revenue-generating projects should be up and running by the time the payments come due, including the renovation of the Farish Street Entertainment District and the beginning stages of the $1.3 billion Old Capitol Green development.
Still, Weill said economic predictions did not support a robust prediction of new revenue coming into the city.
"Mr. Hill's explanation is, ‘Let's just do this until Jackson grows its way out of the problem,' but we're only looking at three or four years down the road before the bill comes due, and all the economic arrows are not pointing up, so we're not going to grow out of this. We're just going to burden our children with this refinancing," Weill said.